London (AFP) - Stock markets fell Friday on the prospect of more US interest rate hikes after two Federal Reserve officials hinted at ramping up its monetary tightening campaign in the face of stubbornly high US inflation.
London and Paris stock markets slid one day after striking record peaks on recovery hopes while Wall Street opened lower.
The greenback topped 135 yen and the dollar index, comparing it with a basket of currencies, hit a 1.5-month peak, though it later pared back gains.
The Fed news also sent oil prices tanking on concerns over the impact on crude demand in the world's biggest economy.
Separately, European TTF natural gas prices sank under 50 euros for the first time in nearly a year and a half, as a mild winter curbs heating demand.
"It was only days ago that investors seemed confident we would only get one or two more small increases in US interest rates and then the Fed might start cutting rates later in the year," said AJ Bell investment director Russ Mould.
"The rhetoric has now changed," he said.
St Louis Fed boss James Bullard and his Cleveland counterpart Loretta Mester on Thursday became the latest monetary policymakers to warn further hikes were in the pipeline.
The tighter policy environment has renewed fears on trading floors that the US economy could tip into recession.
"My overall judgement is it will be a long battle against inflation, and we'll probably have to continue to show inflation-fighting resolve as we go through 2023," warned Bullard.
He also said he would not rule out doubling the next rate increase to 50 basis points next month, a view shared by Mester.
'Optimism is being shaken'
Data showing the US wholesale price index eased slightly last month on an annual basis but rose more than forecast month-on-month also reinforced the view that the Fed has much more work to do to defeat inflation.
Markets had rallied last month on hopes the Fed would be able to pause its hiking cycle soon -- or even cut rates by the end of the year -- but now there is a realisation that more increases are needed to get inflation back to the central bank's two percent target.
"It's taken a lot but it would appear investors' eternal optimism is being shaken," said Craig Erlam, market analyst at OANDA trading platform.
He said the PPI figures are "finally driving the message home that bringing the economy in for a soft landing will be extraordinarily challenging and there'll likely be plenty of turbulence along the way."
It was also another busy day of corporate earnings.
British bank NatWest posted a jump in annual profits to £3.34 billion ($4 billion) as it trimmed costs and the sector benefitted from rising interest rates.
But its shares tanked as much as 9.5 percent, with analysts blaming profit-taking after the bank's stock value climbed strongly in the final quarter of 2022.
German insurance giant Allianz posted a record operating profit of 14.2 billion euros while Air France-KLM returned to profit following massive losses due to Covid travel restrictions.
Key figures around 1445 GMT
New York - Dow: DOWN 0.4 percent at 33,555.78 points
London - FTSE 100: DOWN 0.3 percent at 7,992.84
Frankfurt - DAX: DOWN 0.5 percent at 15,455.96
Paris - CAC 40: DOWN 0.3 percent at 7,344.52
EURO STOXX 50: DOWN 0.6 percent at 4,270.16
Tokyo - Nikkei 225: DOWN 0.7 percent at 27,513.13 (close)
Hong Kong - Hang Seng Index: DOWN 1.3 percent at 20,719.81 (close)
Shanghai - Composite: DOWN 0.8 percent at 3,224.02 (close)
Dollar/yen: UP at 134.61 yen from 133.94 yen on Thursday
Euro/dollar: DOWN at $1.0641 from $1.0674
Pound/dollar: DOWN at $1.1971 from $1.1993
Euro/pound: DOWN at 88.88 pence from 89.00 pence
Brent North Sea crude: DOWN 3.4 percent at $82.21 per barrel
West Texas Intermediate: DOWN 3.8 percent at $75.78 per barrel
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